1 Reolian gets mystery mainland investor
April 19, 2013
Number 360 Friday August 30, 2013
Editor-in-chief Tiago Azevedo
Melco Crown, Louis XIII win new coverage Page 3
Lan Kwai Fong gains on ‘high end’ mass gaming Page 5
Govt threatens sack for an LRT contractor “W
e will not tolerate a single LRT work hindering the progress of the entire project,” said Secretary for Transport and Public Works Lau Si Io yesterday, referring to a continuing row over the city’s light rail project. Mr Lau added that replacing Top Builders International Co Ltd – the firm contracted to build a rail depot and transport interchange at Taipa – was a “possible” course open to the administration. Top Builders – which is in a dispute with the government over who is responsible for stabilisation work on soil at the depot site – earlier this month alleged mismanagement by officials. The contractor said it would cause a three-year delay in the entire Light Rapid Transit scheme, pushing back the launch from 2015 to 2018. More on page 4
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Milk powder alarm sucks Mocha moving ‘banned’ – but no harm done slot club…a few metres As the Fonterra whey protein botulism scare was revealed as a false alarm, Macau retailers told Business Daily that infant milk powder sales are still strong. A Danone SA unit yesterday said it was considering legal action against New Zealand’s Fonterra. Danone – maker of Karicare milk formula – had to recall products. Incorrect testing of the whey ingredient led to a global food safety scare. Page 2
Mocha Clubs – a unit of Melco Crown Entertainment Ltd that runs slot machine parlours in Macau – has announced plans to ‘remove’ one of its outlets from a residential area. But in reality the ‘new’ site is only metres across the road from the existing one. It raises questions about whether the move really follows the spirit of the government’s updated regulations aimed at curbing irresponsible gambling among locals. Page 3
HSI - Movers Name
SINO LAND CO
KUNLUN ENERGY CO
CHINA RES LAND
LI & FUNG LTD
HANG LUNG PROPER
CHINA RES POWER
CATHAY PAC AIR
Pearl Horizon presales surpass expectations The developer of Pearl Horizon has already presold more flats in the high-end project than it expected to sell in the whole of this year. Housing developers rushed to sell flats in unfinished projects before a law governing such sales came into force in June. Polytec Asset Holdings Ltd, announced late on Wednesday that presales for the two Pearl Horizon complexes in the Areia Preta district were “encouraging”. Page 7
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August 30, 2013
Little lasting damage expected from milk powder false alarm Pharmacies say the scare about getting botulism from infant formula failed to reduce sales much Stephanie Lai
he false alarm about botulism bacteria in Fonterra milk powder seems to have inflicted little permanent damage on sales of infant formula in Macau, retailers say. “We have not gathered statistics to account for the Fonterra incident’s impact on infant formula sales, but we can say that it really did not affect the local market much in the past two weeks,” said a spokesperson for the Macau Pharmacies Association. “Though some Cow & Gate products were recalled, they were eventually found to be safe,” the
spokesperson said. Few of the brands of infant formula available here are made with New Zealand milk powder, the spokesperson said. The Macau market most relies on four major brands, Mead Johnson, Friso, Wyeth and Nestle, manufactured in the Netherlands, Germany and Singapore, a pharmacy marketing officer said. New Zealand’s Fonterra Cooperative Group Ltd issued a warning this month that some of its whey protein concentrate used
in infant formula and sports drinks appeared to contain bacteria that can cause botulism, a disease that can lead to paralysis and death. But subsequent testing by New Zealand’s Ministry of Primary Industries found that the strain of bacteria detected posed no threat to human health. The botulism scare triggered recalls of products bearing world-renowned brands in case they contained the whey protein concentrate in question. The products were recalled in a number of markets, from mainland China to Southeast Asia to the Middle East. Russia and Sri Lanka banned suspect products and other countries scrutinised Fonterra products more closely.
Just a pinch
About 82,000 tins of Cow & Gate were recalled in Hong Kong and Macau earlier this month
On August 5 about 82,000 tins of Cow & Gate infant formula, for children between one and three years old, were recalled in Hong Kong and Macau. Pharmacies in Macau’s city centre said they had subsequently felt the pinch in their sales of Cow & Gate products, but had noticed little difference in sales of New Zealandmade infant formula generally. “We did encounter some cases where local and mainland customers shied away from buying Cow & Gate milk powder,” said a sales assistant in one pharmacy, “but there were
only a few such cases.” Fonterra chief executive Theo Spierings said he was “very relieved” that the New Zealand government tests had shown that his company’s products posed no threat. Mr Spierings said Fonterra “did the right thing” in announcing the possibility of a threat to health. “If we had not acted on this, and if something had happened with one child in the world, then it would have caused a massive reputation issue in the long term or, even, you could be wiped off the map and possibly face closure,” Mr Spierings told reporters. The spokesperson for the Macau Pharmacies Association said consumers would soon regain confidence in Fonterra products because the company had shown it had a responsible attitude and had improved its practices. With Reuters
Danone considers legal action vs Fonterra A Danone SA unit said yesterday it was considering legal action against New Zealand’s Fonterra after the maker of Karicare milk formula had to recall products due to incorrect tests that led to global food safety scare. “We are considering our legal position,” Corine Tap, general manager of Nutricia ANZ, told reporters when asked whether the company would take legal action against Fonterra and the New Zealand laboratory which performed the incorrect tests. “There are more countries involved in this situation and we are considering our position at the moment,” she said, adding that she did not have any figures on the damages Nutricia suffered as a result of the recall. Nutricia ordered a recall of 67,000 tins of infant formula in New Zealand. Reuters
Chinese investor gets Reolian stake Share transfer, financial losses have had no impact on public bus services: govt Tony Lai
acau-based HN Group Ltd has transferred its 35-percent stake in public bus operator Reolian Public Transport Co Ltd to a “mainland Chinese individual”, the Transport Bureau confirmed. Wong Wan, the bureau director, declined yesterday to disclose the identity of the new shareholder but told media the government would “closely follow up” the situation. The official said Reolian’s financial losses and the share transfer had had no impact on bus services, “according to observations made by us [the bureau] and civil groups in these few months”.
HN Group, previously controlled by former Legislative Assembly president Susana Chou Kei Jan, sold the stake in mid-July due to Reolian’s deteriorating financial situation, Stephen Chok, a former representative of HN Group in Reolian’s board, told Business Daily earlier this month. Reolian lost about 58 million patacas (US$7.3 million) last year, and more than 4 million patacas every month this year, the company said in May. The controlling shareholder of Reolian is France’s Veolia Transport RATP with a 65 percent stake. Mr Wong also said yesterday there was still no court decision on
New public bus operator Reolian has been a loss-making venture
an ongoing lawsuit filed by Reolian over the money the government pays to them for their services. Reolian wants the government to grant it a 23.3-percent subsidy increase that was already granted to the two other bus operators. The Transport Bureau had only finished checking “one-third” of the bus services run between August 2011 and March this year, said Mr Wong. He hopes to complete the work
still this year. The review was fuelled by a Commission of Audit report released in May, which mentioned that, even though a bus had run all day with no fare records last September, the operator had been paid. The three bus companies were instructed to increase bus frequency by 15 percent to 20 percent during the first few days of the new school year next month.
August 30, 2013 April 19, 2013
Credit Suisse likes Melco Crown’s roster In other developments Union Gaming initiates coverage of boutique casino developer Louis XIII Holdings Michael Grimes
quities researchers at Credit Suisse have commenced coverage on shares of Macau casino developer and operator Melco Crown Entertainment Ltd. In a report this week the bank placed a ‘positive’ rating on the stock as listed on the Nasdaq in New York. The casino firm also has a presence on the Hong Kong bourse. Melco Crown’s shares listed on Nasdaq on December 19, 2006, raising more than US$1.14 billion (9.1 billion patacas). The stock’s price at launch was US$19.00. Following a brief post-launch spike, the firm traded at below launch price until December 2012, data from Nasdaq show. At the close of business on Wednesday, United States time, Melco Crown’s shares were 0.68 percent up on the day at US$26.71. Its price to earnings ratio – i.e., market value per share divided by earnings per share – stood at 32.57. The stock is currently 133 percent up on its one-year low of US$11.452 Despite its modest stock performance over an initial six-year period, the company currently has a roster of new gaming projects that might make it attractive to investors. They include the 60 percent owned US$2.9-billion Studio City on Cotai, which the firm says it hopes will open in the third quarter of 2015. Melco Crown is also planning a fifth hotel tower – possibly starting construction before year-end – at its existing flagship City of Dreams on Cotai.
Development pipeline – Studio City site this week (Photo: Manuel Cardoso)
In filings it also reports a deal entitling one of its units – MCE Leisure – to “approximately” half of the earnings before interest, taxation, depreciation and amortisation of the under construction Belle Grande Manila Bay casino resort in the Philippines. MCE Leisure will also get all profits from non-gaming operations there. In June, Clarence Chung Yuk Man, chairman of Melco Crown (Philippines) Resorts Corp, told Philippines media that Belle Grande would have a fifth more hotel rooms than originally planned – 950, rather than 800. In other market developments,
Union Gaming Research Macau said in a note it was initiating coverage of Louis XIII Holdings Ltd, the company planning to develop a HK$7.4 billion boutique casino hotel property on the Cotai-Coloane border with the aim of attracting premium mass players. Assets associated with the casino project were injected into an existing Hong Kong firm – Paul Y. Engineering Ltd – which then launched a public share offering on the city’s bourse, raising in January HK$3.2 billion toward the cost of the development. In February Paul Y. changed its name to Louis XIII Holdings Ltd.
Grant Govertsen of Union Gaming said in his notice of the coverage: “…we believe one major hurdle has recently been passed as the company has received approval to move forward with heavy construction in the form of the property’s foundation works and diaphragm wall.” He adds: “In the near future we think the company will be in a position to announce the completion of a bank deal that should fully fund the project. We think these two events – especially the bank deal – should be viewed as a signal that the project has the government’s blessing.” Casino Louis XIII is expected to operate under a so-called service agreement with an existing casino concessionaire or sub-concessionaire. The management has so far declined to reveal on which operator’s licence it will be relying. But Business Daily understands from well-placed sources that in the current table-constrained Macau market, the price asked by the licence holder for use of its gaming rights is likely to be at a premium to existing service agreement deals. The property could open in late 2015 or early 2016 according to Stephen Hung – Louis XIII Holdings’ chairman – in comments to Chinese media in Hong Kong in early April. According to filings and guidance to analysts, the property will include 66 gaming tables (50 premium mass, 16 VIP) and 236 hotel rooms all of which are at least 2,000 square feet (186 sq. m.) or larger.
Mocha moving ‘banned’ slot club…a few metres ‘Switch’ revealed in filing by Mocha’s owner Melco Crown Entertainment Michael Grimes
ocha Clubs – a unit of Melco Crown Entertainment Ltd that runs slot machine parlours in Macau – has announced plans to ‘remove’ one of its outlets from a residential area. But in reality the ‘new’ site is only metres across the road from the existing one. It raises questions about whether the move really follows the spirit of the government’s updated regulations aimed at curbing irresponsible gambling among locals. Mocha Marina Plaza is currently in a mixed commercial and residential development known as Edifício Marina Plaza, in Rua de Pequim in downtown Macau. The parlour’s proposed new home across the road and also in Rua de Pequim is Centro Comercial Kuong Fat, a commercial and office property. Business Daily asked Mocha to comment on the appropriateness of the relocation site but no response was available by press time. Melco Crown gave news of the
planned relocation in its interim results for the six months to June 30, filed on Wednesday to the Hong Kong Stock Exchange. In November last year, the government gazetted an administrative regulation instructing Mocha Clubs and market rival SJM Holdings Ltd to relocate within 12 months a total of five slot parlours currently in residential areas. The regulation says slot parlours must be located in either a five-star hotel, a non-residential building located within a 500 metres (0.31-miles) radius of a casino, or a resort that is “not situated in a densely populated area”. The slot parlours affected are Mocha Lan Kwai Fong and Mocha Marina Plaza (both in the downtown area) and Mocha Hotel Taipa Best Western in Taipa, all belonging to Melco Crown. Yat Yuen Canidrome Slot Lounge and Treasure Hunt Slot Lounge on Macau peninsula are operated by SJM.
Mocha Marina Plaza – moving only metres (Photo: Manuel Cardoso)
August 30, 2013
Govt threatens to sack LRT contractor
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But administration accepts more than one-year delay to Macau section of railway
Let’s go shopping Gambling aside, tourists contribute to the economy mainly through purchases of goods and services. Many shops cater to that external demand and their revenues depend in a significant way on tourists’ spending. Tourists also pay for services, namely transport, restaurants and accommodation. Spending at the shops has represented just more than half of all non-gambling expenses for the past few years. But it has been declining slowly. One element contributing to that trend is the change in the structure of Taiwanese tourism. There are decreasing numbers of transit passengers and their average spend on non-shopping items has been rising. So far this year there has not been a breakdown of expenditures published, contrary to the previous practice.
he government has the “initiative” on the Light Rapid Transit railway and could remove one of the project contractors if a current dispute drags on, says Secretary for Transport and Public Works Lau Si Io. “If we finally cannot reach any agreement in negotiations, we will not rule out of taking legal actions,” said Mr Lau yesterday. He was responding to reporters’ questions on the recent Shopping, as a share of non-gambling expenses public row with LRT contractor Top Builders International Co Ltd. % Top Builders, responsible 70 for constructing a depot and transportation hub in Taipa for the 60 railway, earlier this month alleged mismanagement by the government 50 which the contractor said would cause a three-year delay in the entire 40 scheme, pushing back the launch from 2015 to 2018. The government rejected the 30 claims. It admitted a delay of six months to the Taipa section but said 20 time could be clawed back. It added however that some contractors were 10 “not committed”. Yesterday Mr Lau, the 0 departmental official in overall charge, appeared to toughen the government’s stance, but gave ground on the delay allegations. “We will not tolerate a single LRT Patterns of expenditure vary depending on work hindering the progress of the where tourists call home. Mainland tourists entire project,” he stated. are by far the biggest shoppers. Not only is their total expenditure bigger than any other tourist group but the proportion they spend on shopping is also the highest. During most of the quarters represented in this analysis it was above 60 percent although it has declined lately. That number seems to be 5 or 6 percentage points below the average just three years ago. These values for mainland tourists are strikingly different to those for other major tourism source markets. The proportion of shopping expenditure for Taiwanese and Southeast Asian tourists oscillated between 25 percent and 30 percent. The corresponding shares for the other regions shown here – Hong Kong and Japan – are even smaller. Most often, shopping as a proportion of total non-gambling expenditure is less than onethird and one-fifth of that by mainlanders. J.I.D.
Shopping’s share of the average nongambling spending of mainlanders in 2010-2
Replacing Top Builders with a new contractor is “possible”, said the official, adding, “Every solution will be legally and reasonably justified.” A delay to the depot could lead to a domino effect of contractual disputes said Mr Lau. It included the possibility of the rolling stock manufacturer claiming compensation from the government if the trains were ready and had no track on which to be tested. The secretary also stressed the dispute with Top Builders was an
Lau Si Io – government has grip on LRT
“individual incident”. “Apart from the depot and the transportation hub, other works in Taipa have been running smoothly apart from some early delays which are normal,” he added. While there is “hope” the Taipa section will be on time and ready by 2015, Mr Lau admits “It is unavoidable” the Macau section’s progress will be behind that of the Taipa section. “Now there is already a delay of over a year” for the section in NAPE district, said Mr Lau, describing this as “a comparatively bigger problem”. The city’s graft watchdog and ombudsman the Commission Against Corruption suggested in July last year that the railway should run along the waterfront at NAPE rather than through the middle of the district as currently planned. The latter plan has provoked protests from some residents. Asked about the final operational date and budget for the railway, Mr Lau said only there would be more information when the government announces later this year its decision on the NAPE section’s route. The public spending watchdog the Commission of Audit criticised the government last year for allowing the budget to soar above 11 billion patacas (US$1.38 billion), almost three times its initial forecast.
Hengqin railway work starts by year-end
he construction work to extend the GuangzhouZhuhai Intercity Railway from Gongbei border gate to Hengqin Island will start by year-end, Zhuhai media reported yesterday. The extension project, including six additional stops, has been approved by the Guangdong Development and Reform Commission, newspapers Zhujiang Evening News and Southern Metropolis Daily reported. Guangdong Provincial Railway Construction Investment Group Co Ltd was quoted as saying the railway could start running all the way to
Hengqin’s Chime Long International Ocean Resort by 2016. The extension work was supposed to begin by the end of last year. The contractor said there would be infrastructure at the Hengqin border crossing to provide “seamless connection” with Macau’s Light Rapid Transit railway. The Hengqin border crossing is one of the railway’s three stops there. But Macau’s elevated railway is behind schedule, with one contractor saying earlier this month the project could be postponed by up to three years, which would push it to 2018.
The Guangzhou-Zhuhai railway, launched in late December, has been mentioned as one of the factors bringing more tourists to Macau this year. Visitor arrivals have been on a rising trend since February after declining year-on-year for nine consecutive months, official data show. Macau welcomed 16.7 million travellers in the first seven months of 2013, 4.3 percent more than a year earlier. The mainland Chinese market rose even faster by 10.4 percent to 10.6 million. T.L.
August 30, 2013
Macau Junket firm Amax places new shares Macau junket investor Amax Holdings Ltd, in July described by auditors as facing “material uncertainty” as a going concern, is to raise HK$9.46 million (US$1.22 million) gross – just under HK$ HK$9.32 million net of fees – from a share placement. A total of 11 million shares at 86 HK cents each are going to an unidentified subscriber, according to a Hong Kong regulatory filing. The deal represents slightly more than five percent of Amax’s existing share capital and 4.82 percent of its capital as enlarged. Amax had losses for year ending March 31 of approximately HK$39.38 million. Earlier this month Amax said in another filing it is negotiating to buy outright a hotel and casino project in the Pacific island republic of Vanuatu off the east coast of Australia. In late June the company reported it wants to operate a casino in the Turkish Republic of Northern Cyprus. The area of the Mediterranean island is only recognised by Turkey.
Lan Kwai Fong profits on ‘high end’ mass gaming Competition grows in VIP gaming rooms, says China Star Vítor Quintã
he “outstanding” performance of hotel-casino Lan Kwai Fong, fuelled by a focus on mass-market gaming, drove up the profits of China Star Entertainment Ltd. The Hong Kong-listed firm said in a filing its first-half profit rose by 44.5 percent from the first six months of 2012 to HK$60.8 million (US$7.8 million). China Star’s revenue increased by 20 percent to HK$713.1 million. Even though the company began as a producer of Cantonese-language films, 88 percent of its first-half turnover came from Lan Kwai Fong, operating under a Sociedade de Jogos de Macau SA gaming licence. The casino’s performance was “encouraging” as it “spend resources” to expand its mass-market share and “targeted the high end customers in the mass table gaming,” China Star wrote. Mass table gaming operations are more profitable than VIP operations. Revenue from mass-market
Corporate Clean energy forum on heels of city smog The Macau-based International Forum for Clean Energy holds its second conference on September 3 and 4 at the Sofitel Macau in the Ponte 16 casino resort. The city’s air quality plummeted to a three-year low last week for the second time in 2013. The theme of this year’s forum is the latest clean energy technologies. More than 100 delegates are expected, including academics, representatives from United Nations agencies and attendees from Macau, mainland China, Taiwan, Hong Kong, the United States and Europe. As energy costs linked to traditional fossil fuels rise in the Pearl River Delta, along with air pollution, the business imperative for alternative energy sources has been building. Last week Iun Iok Meng, advisor to the executive committee of Macau’s sole electricity distributor – Companhia de Electricidade de Macau SA (CEM) – said he hoped the government would approve before year-end a new electricity tariff scheme, under which big users such as hotels and casino resorts pay more.
International School of Macao to expand The International School of Macao plans to expand its campus as student numbers have risen nearly seventeen-fold since its launch a decade ago. “Plans are under way to construct a Phase II building that will increase our overall capacity to 1,600 students and keep pace with Macau’s educational demands,” says Howard Stribbell, Head of School. Enrolment for the 2013-2014 academic year has risen to more than 980 students, the largest roll in its history. The school opened in 2002 with only 58 students but has since grown rapidly. “At the current rate of growth, the school will soon outgrow its building capacity of 1,000 students,” it said in a press statement. The school provides a Canadian teaching curriculum to local and expatriate students, with English as the primary language of instruction. According to data from the city’s Statistics and Census Service, Macau’s population of non-resident workers grew by 371 percent between year-end 2002 and year-end 2012.
gaming rose by over a third to HK$482.7 million, whereas VIP revenue fell by almost a quarter to HK$73.9 million, the company said. Lam Kwai Fong’s “outstanding” performance was partially offset by a loss of HK$37.9 million from a VIP gaming room at the Grand Lisboa casino. Most of the business volume of VIP gaming is “highly volatile,” China Star said. The Grand Lisboa room “had lost its competitive advantage” as it cannot offer “a better-than-market commission” to sub-junkets or customers “as they were attracted by other large and well equipped new hotels and casinos,” the company explained. China Star also owns retail chain Nam Pei Hong, which focuses on healthcare products. The company says it is planning to expand the chain to Macau in the second half of 2013. The firm is still waiting for government approval to develop four sites located near Lan Kwai Fong into commercial units and residential apartments for sale.
Revenue from mass-market gaming rose by over a third at Lan Kwai Fong
August 30, 2013 April 19, 2013
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Financial Monitor Uneven slowdown The figures for consumer prices last month confirm two features of the recent evolution of prices. First, overall, the inflation rate has lost some momentum. Prices are rising but at a slower pace than a few months ago. The simple average of monthly rates of inflation in the first half of this year is more than 1 percentage point below the average for the same period last year. Second, a few price-sensitive goods and services are now the main drivers of inflation, with their prices rising above the average. Prices for food and beverages, and health services both grew by more than 6 percent in the last year to July 31. Housing and fuel increased by about 9 percent. The later category index changes seem to be finally reflecting existing anecdotal evidence concerning rising renting costs.
The plot of the price indices for these categories shows an upward trend. In the past three years to the end of last month, average prices went up by 24.7 percent and 21.7 percent. Health costs came immediately after, growing by 19.2 percent. Prices for other housing-related costs, such as home equipment and materials, are trailing only slightly behind. The increase in their prices was about 18 percent in the period. In the case of housing and fuel, and food and beverages, the most recent figures suggest price rises are accelerating. Among the most price sensitive goods and services, prices for clothing and shoes are the slowest risers. Aside from obvious seasonality in their prices, this is also the only category subject to actual price decreases during the year, after summer and around New Year. J.I.D. The content of this column is the work of Business Daily’s journalists.
Rise in costs of housing and fuel since the start of the year
La Scala prosecutors told to find missing testimony A recording of an important witness giving evidence seems to have been mislaid Tony Lai
he Court of First Instance is still waiting for the testimony of a witness that played an important role in the grant of land for La Scala, the upmarket housing project that is one of the main focuses of a corruption case the court is trying. The witness is a former director of the Infrastructure Development Office, António Castanheira Lourenço, whose testimony was recorded this year in Portugal, where he lives. But the compact disc containing the recording has yet to arrive in Macau, the court heard yesterday. “We have heard that the disc was in Portugal, Beijing and in other places, but not here,” said Rui Sousa, counsel for one of the accused, Hong Kong businessman Steven Lo Kit Sing. Mr Lo and the chairman of Hong Kong-listed developer Chinese Estates Holdings Ltd, Joseph Lau Luen Hung, are charged with giving Ao Man Long, then a government secretary, a bribe of HK$20 million (US$2.5 million) to ensure the success of their bid for the land near the airport where La Scala was being built. Another court has already
Medium, small flats top the charts W
ith home prices rising and land for development scarce, most of the residential projects being built or waiting for approval will offer small and mediumsized flats, official data show. More than half of the 65 residential projects under construction have flats with 75 to 150 square metres, most of which are two-bedroom units, the Land, Public Works and Transport Bureau said yesterday. The department was also processing the construction plans of 250 residential projects by the
António Castanheira Lourenço, former director of the Infrastructure Development Office
convicted Mr Ao of corruption and money laundering and sentenced him to 29 years and six months in prison. The presiding judge in the La Scala trial, Mário Silvestre, yesterday asked the Public Prosecutions Office once again to find out where the recording of Mr Lourenço’s testimony is. The court had asked counsel for
end of June, which can provide 30,220 flats and are mostly located in Macau peninsula. Of these flats, 53 percent of them have 75 to 150 square metres. A further 27 percent have less than 75 square metres. Some of these projects have yet to be approved because they “violate the height restrictions for the site or are located near cultural heritage sites,” the bureau noted. The foundation works of over two-
the prosecution to find the recording when the trial began in June, and again last month. But the prosecution told the court that they still did not know where it was. Mr Lourenço was formerly manager of Lei Pou Fat Development Co Ltd, the umbrella company that ultimately held the land in question before the land was auctioned in 2005. Other witnesses have told the court that Mr Lourenço advised or instructed them on all pertinent decisions about the land. One witness testified during yesterday’s 20-minute hearing. The witness, ATAL Engineering Ltd employee Yu Wei Li, described the company’s managing director, Fong Chun Yau, as hard working and diligent in monitoring the progress of the company’s work. Mr Fong is charged with bribing Mr Ao to win contracts for his company to manage the sewage treatment plants in the ZhuhaiMacau Cross-Border Industrial Park and on Coloane. The trial will continue on September 9.
thirds of the 65 private residential projects under construction have already been completed. In total they can provide about 6,962 flats. Almost all of these units are located in just 17 high-rise residential projects located in Macau peninsula and Coloane’s Seac Pai Van, which could all be ready by 2016. The remaining low-rise 48 projects under construction could provide 871 flats. S.L.
August 30, 2013 April 19, 2013
Macau Pearl Horizon presales surpass expectations The developer pushes back the completion date of the Areia Preta housing Vítor Quintã
he developer of Pearl Horizon has already presold more flats in the high-end project than it expected to sell in the whole of this year. Housing developers rushed to sell flats in unfinished projects before a law governing such sales came into force in June. The Pearl Horizon developer, Polytec Asset Holdings Ltd, announced late on Wednesday that presales of space in the two Pearl Horizon complexes in the Areia Preta district were “encouraging”. Polytec Asset said its receipts from presales in the first five months of this year had exceeded HK$10 billion (US$1.29 billion). Or Wai Sheun, the chairman of Kowloon Development Co Ltd, the parent company of Polytec Asset, said in June that he expected receipts from Pearl Horizon presales to be HK$10 billion this year, about the same as last year. The smaller Pearl Horizon complex will contain 1,818 flats, according to the Land, Public Works and Transport Bureau website. Polytec Asset had sold 260 flats by the end of April. The company said the law on presales would “adversely affect the
group’s future presale plans”. The law allows the sale of unfinished flats only once the foundations of the building containing them are completed and each flat is registered with the government. Polytec Asset owns 80 percent of the Pearl Horizon project.
Delayed start In June the government approved an amendment to the grant of land for the smaller Pearl Horizon complex. Polytec Asset said it had “submitted the application for work commencement and the foundation work is expected to commence shortly”. The company had previously said it was expecting to begin construction of the bigger Pearl Horizon complex in the first half of this year. But now it says it had yet to get government approval to do so. Work had been scheduled to finish in late 2015 or early 2016. But Polytec Asset said earnings from Pearl Horizon presales would not now be distributed until 20162017, when the project was finished. The company said it expected
Polytec Asset has got HK$10 billion from Pearl Horizon presales this year (Photo: Manuel Cardoso)
the economy’s “strong momentum”, accompanied by big infrastructure and casino projects, to “continue to buoy up its property market healthily over the medium and long term”. Polytec Asset owns 50 percent of Macau Square, an office and commercial building in the city centre.
The company’s earnings from Macau Square in the first half of this year were HK$21.9 million, 14.3 percent more than a year earlier because, it said, rents were higher. But its revenue fell by 80.7 percent to HK$57.1 million and its net profit fell by half to HK$50.4 million.
HK airport expansion a break for logistics here Business could spill over to Macau as HK airport mulls third runway
here are “business opportunities” for the Macau logistics industry as the Hong Kong International Airport will remain overloaded with cargo until a third runway is built, the government’s logistics development committee says. Cargo traffic has already been “quite busy” in the Hong Kong airport and some of that business could actually divert to Macau, said committee head Wong Wan yesterday. Hong Kong has been mulling the
possibility of building a third runway in its airport but there is so far no final decision on the project. Mr Wong said the committee is now considering how to better connect the Macau International Airport and other terminals with the Hong Kong-Zhuhai-Macau Bridge to seize those business opportunities. The bridge could be ready by 2016. There are spaces reserved on the artificial island where the bridge will land for the logistics industry and cargo, according to a government plan. “More convenient and quick
clearance procedures are useful, like inbound air cargo not needing to enter the Macau border but be directly shipped to the Hong Kong-ZhuhaiMacau Bridge,” Mr Wong, also the head of the Transport Bureau, said. “Right now the bottleneck for our logistics industry is that there are imports but no exports (…), which also push up the logistics costs,” he said. One committee member suggested using a tunnel or extension to connect the bridge with the airport, said Mr Wong. He described the proposal as “innovative” but
warned it may not be practical. He stressed the importance of developing the logistics industry, which could then support the convention and exhibition sector and the tourism industry. Macau will sign a cooperation pact with mainland China to train local professionals in October, said the Mr Wong. He hopes the pact will lead to a single exam that can allow residents in the future to have their qualifications recognised on both sides. T.L.
August 30, 2013 April 19, 2013
Chinese shoppers set to lead online Mainland’s e-commerce market to become world’s largest this year Paul Carsten
hina’s e-commerce market is expected to leapfrog that of the United States this year to become the world’s largest by total customer spending, management consultancy firm Bain & Co says, and could account for half of all Chinese retail spending within a decade. The change in shopping habits comes as almost half of the country’s 1.3 billion population now have direct access to the Internet, and of that number nearly 80 percent own smart phones or tablets. China’s e-commerce market has grown at an average rate of 71 percent from 2009 to 2012, versus 13 percent in America, and its total size is expected to reach 3.3 trillion yuan (US$539.07 billion) by 2015, the consulting firm said in a report. Total spending by Chinese consumers on online shopping reached US$212.4 billion in 2012, compared to US$228.7 billion in the U.S., the report said.
RMB 3.3 trln
China’s e-commerce market may be worth by 2015
Chinese companies with retail outlets have had to realign their sales strategies to compete with online rivals who threaten to undercut them in an increasingly competitive market long dominated by e-commerce company Alibaba Group Holding Ltd, and others like 360Buy Jingdong Inc. “It’s a massive change. It just means you need to be on the web, whether you like it or not,” said Serge Hoffmann, a partner at Bain and coauthor of the report. “Whether you’re an online player or an offline player, you need to have a meaningful, credible presence on the web.”
Logistics woes While still a small portion of total revenues, the growth of online sales is far outpacing offline sales growth. Haier Electronics Group Co Ltd, which operates an online stall on Alibaba’s business-to-consumer site Tmall.com, saw its e-commerce revenue jump almost 500 percent to 633 million yuan, or 2 percent of its total revenue, in the first half of 2013, from 106 million yuan in the same period last year. Its total revenue grew 10.2 percent. Suning Commerce Group Co Ltd saw its e-commerce business rise to 10.6 billion yuan in the first half of 2013, an increase of 101 percent on the same period last year. Soon retail companies may have to take a leap of faith, shutting their bricks and mortar outlets to reduce overhead costs and hope that customers will turn to their online stores, said Nicholas Studholme-
Growth of online sales outpacing offline sales growth
Wilson, a senior analyst at Sun Hung Kai Financial in Hong Kong. Alibaba, whose Taobao customer-to-customer website is the world’s 10th most visited according to web monitor Alexa, predicts e-commerce will account for half of all Chinese retail spending in 10 years, from 6 percent now. “Proliferation of smart devices mean everybody is connected at all times, that’s one of the key drivers for this,” said Mr Studholme-Wilson. “Another problem you’ve got in China is that retail is so damn expensive. Land costs and labour costs are all really hurting margins. Whereas it’s actually very easy to set up a shop on Tmall and your costs are massively reduced,” he said. Logistics, however, pose a
MMG may work with partners on acquisitions Miner’s net profit fell to US$35.9 million in the first half Sonali Paul
hinese miner MMG Ltd is willing to work with partners as it seeks to grow, its chief said yesterday, while declining to comment on whether it is eyeing a stake in Glencore Xstrata Plc’s US$5 billion Las Bambas copper project in Peru. However MMG’s Chief Executive Andrew Michelmore made clear Peru fits where the company is looking for copper acquisitions and reiterated it was chasing opportunities in the US$1 billion to US$4 billion range. “We look in the parts of the world where those best mines are, and that’s through the copper belt in Africa, where we bought the Kinsevere operation, and also that strip that goes down the west coast of North America and South America,” he said. “So we continue to look at opportunities there.” Three Chinese firms – MMG, Chinalco Mining Corp International and Jiangxi Copper Co Ltd – have expressed an interest in bidding
Andrew Michelmore, MMG’s chief executive
for Las Bambas, which Chinese regulators required Glencore to sell as a condition for clearing its US$30 billion takeover of Xstrata earlier this year.
The Chinese firms may be put into teams, rather than bidding alone for what will be a huge project, Reuters reported last week. “We don’t believe that we’re
major obstacle to e-commerce development, and Alibaba is now working with Chinese logistics firms to improve nationwide infrastructure and delivery networks, said Shih. Gome Electrical Appliances Holding Ltd, whose online revenue now accounts for 5 percent to 6 percent of its total earnings of 27 billion yuan, is changing its retail strategy to accommodate the new wave of online customers. The firm closed a total of 35 stores in the first half of this year, said Helen Song, a spokeswoman for Gome. Now the company plans to continue moving away from its physical business to better supply China’s rapidly changing consumer habits. Reuters
so big that we can do everything ourselves. We see benefits of working with others. So we’re certainly receptive on that in terms of growth,” Mr Michelmore told analysts and reporters on a conference call after reporting a 75 percent slide in halfyear profit. He said the kinds of partners the company would look for could bring operating, marketing and technical experience or financial support. MMG, based in Melbourne, listed in Hong Kong and controlled by state-owned China Minmetals Corp, acquired the Kinsevere copper mine in the Democratic Republic of Congo last year for US$1.3 billion. That mine helped boost production in the first half of this year, but accounted for a large part of a 15 percent rise in operating costs, as MMG had to buy diesel for an on-site power generator to make up for a hydropower supply shortage. Net profit fell to US$35.9 million for the six months to June down from US$144.5 million a year earlier, hit by weaker copper, gold and zinc prices, lower gold and zinc output, and the higher power costs at Kinsevere. That was in line with a recent profit warning. MMG said it was on track to meet its forecast for output of 170,00-185,000 tonnes of copper and 572,000-590,000 tonnes of zinc in 2013. Reuters
August 30, 2013 April 19, 2013
Rongsheng seeks funding as ship order slump cuts cash Few new orders coming as sales plunge 71 percent Jasmine Wang
hina Rongsheng Heavy Industries Group Holdings Ltd, seeking government assistance after a slump in vessel orders, is pursuing alternative sources of funding after burning through cash and posting a second straight loss. The biggest Chinese private shipbuilder is in talks with banks for loan refinancing as it seeks to control costs and capital expenditure. Shares of Shanghai-based Rongsheng fell the most in more than a month in Hong Kong. The shipyard will have sufficient funds to meet obligations over the next one year, based on a review of its cash-flow projections, the company said on Wednesday. Rongsheng’s ability to raise funds and meet payments will determine how much China needs to intervene in the sector after the government earlier this month issued a three-year package to support the troubled shipbuilding industry, the world’s biggest. “Since the management has plans to address the key liquidity issue, we can’t continue to cast doubts on the company,” said Lawrence Li, a Shanghai-based analyst with UOB Kay-Hian Holdings Ltd. Still, the lack of new orders is a cause of concern, he said. The stock dropped as much as 7.3 percent, the biggest intraday drop since July 8, before closing at 92 Hong Kong cents. The shares have declined 27 percent this year. Some customers sought to postpone delivery of vessels amid a sluggish global shipping market and that delayed collection of receivables, Rongsheng said in a statement. At the same time, the company continued to
make payments to its suppliers and workers, crimping cash flows.
Going concern With sales plunging 71 percent and few new orders coming, Rongsheng’s cash and cash-equivalents decreased by 1.27 billion yuan (US$208 million) to 871 million yuan as of the end of June. Total borrowings were 24.85 billion yuan, the company said. “The above conditions indicate the existence of uncertainties, which may cast doubt on the group’s ability to continue as a going concern,” Rongsheng said in a note to the earnings report, reiterating comments made in a March statement. The company posted a firsthalf net loss of 1.26 billion yuan, compared with a profit of 215.8 million yuan a year earlier, it said. Revenue totalled 1.58 billion yuan and trade and bills receivables that were due for over 360 days more than doubled to 3.1 billion yuan from 1.2 billion yuan. “These weak financial results will make new orders even harder to win, given customers will steer clear of a distressed yard,” Vincent Fernando and Yan Ke, analysts at Religare Capital Markets Ltd, wrote in a note yesterday. They have a target price of 50 Hong Kong cents for Rongsheng’s stock. “While not our base case, this is the kind of stock that could potentially go to zero,” they wrote. China announced its support for the industry as a third of its shipyards may shut down in about five years amid a global vessel glut. The country held an order book of 109 million
New shipbuilding prices ‘under severe pressure’, Rongsheng says
deadweight tons at the end of June, 13.4 percent lower than a year earlier, according to government data. Export-Import Bank of China on Wednesday signed a strategic cooperation deal worth 100 billion yuan with China State Shipbuilding Corp, the bank said in a statement on its website. Private yards are also facing increased competition from statebacked builders, who have easier access to credit to pay workers, buy raw materials and provide financing for clients. China State Shipbuilding, China Shipbuilding Industry Corp. and other government-run companies won three-quarters of all orders in the first half. Bloomberg News
These weak financial results will make new orders even harder to win, given customers will steer clear of a distressed yard Analysts at Religare Capital Markets Ltd
Regulator to expand trial of asset backed securities C
hina pledged to expand the packaging of loans into securities to dissipate financial risks, part of efforts to increase the use of markets and sustain economic growth. The trial will be expanded as a way to “activate” the use of credit, China’s State Council said in a statement. The People’s Bank of China has told the country’s lenders to securitise their good-quality assets and to sell the resulting securities to investors in the interbank market and exchanges, according to a statement from the central bank yesterday. “The expansion of the trial shows the government wants to make better use of existing credit to help support the economy,” said Xu Wenbing, an analyst in Shanghai at Bank of Communications Ltd, the nation’s fifth-biggest lender. “Not only the nation’s biggest banks but also smaller banks, and even nonbank financial institutions, may be allowed to securitise their loans.” Chinese Premier Li Keqiang is liberalising parts of the country’s financial markets after economic growth slowed to 7.8 percent last year, the least in more than a decade. Authorities will seek to prevent the securities from causing dangers in the financial system by excluding relatively risky assets in the trial, according to the State Council statement. The difficulty of assessing risk in bonds backed by loans was a major contributor to the global financial crisis. The PBOC said China has come to a stage at which it “must accelerate credit asset securitisation” as selling off some bank assets will help lenders better allocate their capital. “It will permit the banks to manage their balance sheets better,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “Given that bank balance sheets have expanded tremendously over the past several years, this is a positive, and a step forward.” Bloomberg News
August 30, 2013 April 19, 2013
Philippine growth on course to beat full-year goal Economy defies Asia slowdown as growth holds above 7 pct Qantas underlying profit doubles Qantas Airways Ltd, Australia’s flagship carrier, doubled its underlying annual profit as shrinking losses on its international arm offset tougher competition on its lucrative domestic routes, sending its shares up 7 percent. Qantas, which formed an alliance with Emirates Airline this year in an effort to trim losses on international routes, has been battling to keep its domestic yields up as investment in the once-booming resources sector slows and the government forecasts limp economic growth into 2014. The slowdown has coincided with a ramping up in competition from rival Virgin Australia Holdings Ltd. As well as cutting unprofitable international routes, Qantas has been shedding jobs, reducing capital spending and selling assets to cut debt. It announced it would sell its Qantas Defence Services unit, which provides logistics and support for the Australian government and military, to Northrop Grumman Corp for A$80 million. Qantas said underlying profit before tax rose to A$192 million (US$171.72 million) from A$95 million a year ago. Underlying operating losses on its international arm halved to A$246 million, while profits on domestic earnings fell 21 percent to A$365 million. The airline posted a full-year net profit of A$6 million from a net loss of A$244 million a year ago.
Australia business investment up Australian business investment was surprisingly strong last quarter as spending by miners more than offset a slump in manufacturing, though plans for the year ahead suggested investment was set to slow from here. Yesterday’s data from the Australian Bureau of Statistics showed capital spending climbed 4 percent in the second quarter to an inflationadjusted A$40 billion (US$35.8 billion), topping forecasts of a 1 percent increase. Mining again led the way with a 6.4 percent jump in spending, the best result in a year and a reminder the resource boom was not quite dead yet. Still, the best of the bonanza did look to have passed. “We still think resource investment is going to peak in the second half of 2013 and from thereafter it will be a drag on overall economic growth,” said Tom Kennedy, an economist at JPMorgan Chase & Co. “So we still do need some sectors of the economy to step up and fill that void.” So far, however, the response has been disappointing with some firms blaming political uncertainty ahead of a Federal election on September 7 for a reluctance to invest.
he Philippines matched China’s expansion in the second quarter, becoming the two fastest growing economies in Asia, as strong fundamentals, domestic spending and investments buttressed the Southeast Asian nation from regional fund outflows. Its solid growth performance lifted the peso from nearly 3-year lows and the stock market from 9-month lows, and better positions the Philippines to keep its favoured status among investors amid market volatility. The co u n tr y h a s o v er ta k en Southeast Asian neighbours such as Indonesia as a safer investment bet due to prudent management of fiscal and monetary policy. It secured investment grade from two ratings agencies this year. But analysts warned that delays in public infrastructure projects could create uncertainty that might stall investments going forward as it seeks investors to bankroll construction of pivotal roads to railways. Recent fund outflows from emerging markets due to the U.S. Federal Reserve tapering fears may also lead to destabilising capital flows in the economy, said Bernard Aw, analyst at Forecast PTE Ltd in Singapore. But most analysts say the country’s strong current account, adequate forex reserves and lower export dependence differentiates it from its regional peers. The economy grew an annual 7.5 percent in the second quarter, above a 7.3 percent market estimate, and compared with a revised 7.7 percent growth in the first quarter. From the previous three months, GDP rose 1.4 percent in the second quarter, higher than the 0.8 percent forecast in a Reuters poll. It was the slowest pace in a year and below the upwardly revised growth of 2.3 percent in the March quarter. “The Philippines remains a bright spot in Asia,” said Jeff Ng, an economist at Standard Chartered Plc in Singapore. “While expansions in other countries are fading, Philippine GDP growth remains very much robust
and we see growth persisting at abovetrend levels. Infrastructure investment is imperative in sustaining the growth trajectory in the next few years.” Analysts expect the central bank to keep the policy rate on hold at a record low level of 3.5 percent after the data.
Growth shift The Philippines has managed to sustain annual growth of above 7 percent for four quarters in a row, defying a slowdown in the region as it presses on with reforms. “The composition of our growth shows signs of an economy that is in the process of rebalancing, moving from being largely consumptiondriven to becoming investment-led and industrialised, with the ability to provide higher quality jobs for Filipinos,” Socioeconomic Planning Secretary Arsenio Balisacan told a media briefing. “This internal dynamism indicates greater consumer and business confidence in the domestic economy, as we have continued to keep our macroeconomic fundamentals in check.” The Philippines is on course to
KEY POINTS Economy grows above 7 pct for 4th straight quarter Philippine expansion matched China’s growth ‘Likely to surpass 2013 growth target’ – official Data should boost investor confidence – central bank
Malaysia splits with Asean claimants Malaysia differed with fellow Southeast Asian claimants in the South China Sea on the threat posed by China, dismissing concerns about patrols off its coast. Malaysia is not worried about how often Chinese ships patrol the areas it claims in the waters, Defence Minister Hishammuddin Hussein said in an interview in Brunei yesterday. Chinese Navy ships in March visited James Shoal off Malaysia, near where Royal Dutch Shell Plc and Petroliam Nasional Bhd have oil and gas operations. “Just because you have enemies, doesn’t mean your enemies are my enemies,” Mr Hishammuddin said on the sidelines of meetings with counterparts from the Association of Southeast Asian Nations as well as the U.S. The Chinese “can patrol every day, but if their intention is not to go to war” it is of less concern, he said. “I think we have enough level of trust that we will not be moved by dayto-day politics or emotions.” Beijing yesterday said it will “not shy away from problems” in disputed Asian waters. “Currently the South China Sea situation is stable and when we look at other places in world, we should dearly cherish it,” Chinese foreign minister Wang Yi said yesterday.
Filipinos abroad send an average of US$1.7 bln in remittances every month
outperform its GDP growth target this year of 6 percent to 7 percent and its strong fundamentals will allow it to manage risks coming from market volatilities and global headwinds, he added. Capital formation and public spending, up 13.2 percent and 17 percent from a year ago, have been growing faster than household consumption, up 5.2 percent, in the last three quarters. Growth in household spending has remained at single-digit levels since at least the first quarter of 2011. The government is hopeful continued strong growth will substantially lower poverty levels. The number of poor are estimated at more than a fourth of its 97 million population. Like many of its regional neighbours, the Philippines has not been immune to the global downturn or fund outflows as the U.S. Fed starts winding down monetary stimulus. The peso is down nearly 8 percent this year. Exports and imports fell more than 4 percent in the first half of the year. But with a tenth of the Philippine population abroad and sending an average US$1.7 billion in remittances every month, domestic demand in the country has remained solid, helping cushion the economy from slumping trade. A challenge for one of Asia’s top performers is to keep policy sufficiently supportive to protect the domestic economy from weak external demand in the second half. “Government spending may slow post-election, with some concerns that the ongoing case on the abuse of a discretionary fund may curb state expenditure,” said Mr Aw of Forecast. Bangko Sentral ng Pilipinas governor Amando Tetangco said the latest data should help boost investor confidence, and support the peso and the local stock market. He added that the authorities will ensure monetary policy supports non-inflationary robust growth. Reuters
August 30, 2013 April 19, 2013
Malaysia sales tax only by 2015 Goods and service tax would take 14 months to implement, official says
alaysia’s goods and service tax (GST) will take 14 months to implement if announced in the budget in October, a ministry official said yesterday, as the government moves to curb its stubborn fiscal deficit and high debt burden. The GST will help Malaysia broaden its tax base and tackle a fiscal deficit that has widened to 14.9 billion ringgit, as well as a shrinking current account surplus which fell sharply to 2.6 billion ringgit (US$780 million) in the second quarter. “If announced now it will come online in 2015,” said the finance ministry’s secretary general Mohd Irwan Serigar Abdullah. He also said that Prime Minister Najib Razak will announce a decision on subsidy rationalisation soon. “We are confident of achieving
our fiscal target of 4 percent of GDP this year,” he said. He added that he sees it reaching 3 percent in 2015 and potentially reaching a surplus budget by 2020. The Malaysian government is also considering whether to review and space out budget-straining public sector projects to address its evaporating current account balance. No projects were identified yet but Mr Mohd Irwan stressed that the publicly funded 50 billion ringgit Mass Rapid Transit (MRT) rail system project will not be affected. “The possible rescheduling refers to projects with heavy public sector involvement, not private sector projects,” Mr Mohd Irwan said. Idris Jala, the government minister spearheading the US$444 billion ringgit Economic Transformation Programme (ETP), added that the
government is “looking at sequencing projects with low multiplier effect and high import content”. A fiscal policy committee meeting to discuss these measures will be held on Monday and will be chaired by Mr Najib. Its decisions will be reflected in the upcoming 2014 budget. Malaysia’s annual growth rate picked up slightly to 4.3 percent in the second quarter. It was bolstered by strong government spending before national elections in May and resilient domestic demand helped by large infrastructure projects under Mr Najib’s ETP. Mr Mohd Irwan added that he has spoken with officials from rating agency Moody’s Investors Service, who said they will consider Malaysia ratings only after the new budget is revealed. Another ratings agency Fitch Ratings cut its outlook on Malaysia’s A-minus sovereign debt to negative from stable in July, citing a lack of reform to tackle rising debt. The Malaysian ringgit has lost more than 7 percent so far this year against the dollar and stocks have slid nearly 7 from their peaks in mid May amid a global emerging market sell-off, sparked by the U.S. central bank’s plan to soon begin tapering back its stimulus and growing fiscal strains in some developing countries. Reuters
Malaysia’s economy grew by 4.3 percent in the second quarter
BOJ policy maker warns of more outflows Morimoto says Japan economy headed for recovery
he global economy could be hurt if the withdrawal of funds from emerging markets picks up ahead of an expected reduction in the U.S. Federal Reserve’s monetary stimulus, a Bank of Japan board member said yesterday. Yoshihisa Morimoto also signalled that Japan’s government needed to proceed with a planned two-stage hike in the sales tax as part of efforts to fix its tattered finances, or face a severe market backlash. He shrugged off the need to loosen monetary policy again to ease the pain from the tax hikes. The former utility executive stuck to the BOJ’s assessment that Japan’s economy was headed for a moderate recovery, but noted challenges such as geo-political risks in the Middle East and market volatility caused by expectations the Fed could start tapering its bond-buying programme as soon as next month. “Market participants are withdrawing funds from emerging and resource-rich nations on
expectations [of Fed’s tapering] and may continue to do so,” Mr Morimoto said in a speech to business leaders in Morioka, northeastern Japan. “The global economic recovery remains fragile, so there’s huge uncertainty on how a sharp outflow of funds could affect financial markets and global growth,” he said, in the starkest warning to date by a BOJ official on the potential risk for a bigger capital withdrawal from emerging economies. “We expect the global economy to resume a moderate recovery. But with emerging economies struggling, the pace of recovery will be moderate,” Mr Morimoto said. The BOJ unleashed an intense burst of monetary stimulus in April to end chronic deflation and achieve its 2 percent inflation target in roughly two years. Last month, its raised its assessment to say the economy was “starting to recover moderately”. “The economy is moving in line with our forecasts,” he told reporters after the meeting, dismissing market
speculation that if the government proceeds with the planned tax hike, the BOJ will ease again to cushion the damage to the economy. Reuters
We expect the global economy to resume a moderate recovery. But with emerging economies struggling, the pace of recovery will be moderate Yoshihisa Morimoto, Bank of Japan board member
Rupee bounces as RBI sells dollars to state oil refiners T
he Indian rupee rebounded yesterday from a record low after the central bank’s move to provide dollars directly to oil companies provided relief to the currency, while a recovery in emerging market currencies also helped offer support. The central bank decision is aimed at removing a major source of dollar demand from the spot market – worth US$400 million to US$500 million daily – and so reduce downward pressure on the Indian currency. The rupee rose as high as 66.85 per dollar shortly after the open, up sharply from a record low of 68.85 per dollar on Wednesday when the currency posted its biggest single-day percentage fall since October 1995. The Reserve Bank of India (RBI) said it was providing a special window with immediate effect to sell dollars to Indian Oil Corp Ltd, Hindustan Petroleum Corp and Bharat Petroleum Corp Ltd. Oil represents India’s biggest import item. However, analysts said the RBI measures alone would not lead to a sustained rupee recovery unless the government can pass measures that can convince markets of its willingness to tackle India’s fiscal and current account deficits and slowing growth. “The measure is unlikely to arrest the decline in the INR with the authorities increasingly trying to find new means to stem the rout in the currency,” Mitul Kotecha, head of global markets research for Asia at Credit Agricole in Hong Kong, said in an email to clients. Yesterday’s rupee bounce also boosted shares and bonds, underscoring how movements in domestic markets are increasingly being driven by the beleaguered currency. The improved sentiment was also helped as Asian shares recovered while emerging market currencies stabilised as fears abated that U.S.led forces would soon launch a military strike against Syria. The defence of the rupee has largely rested so far on the RBI’s shoulders. Yet its plan to drain cash from markets and curb speculative trading is becoming increasingly controversial as bond yields have surged, raising borrowing costs in an economy already growing at its slowest pace in a decade. At the same time, the government has struggled to inspire confidence despite a slew of measures to raise dollars from abroad and curb imports of gold and oil that have most contributed to a record current account deficit. Reuters
August 30, 2013 April 19, 2013
Japan corporate tax cut plan raises doubts Proposal receives lukewarm reception from analysts, policy makers Yoshifumi Takemoto and Nathan Layne
apan’s corporate tax rate is among the highest in the world and getting companies to use more of their earnings to invest and hire is crucial to the economic renaissance promised by Prime Minister Shinzo Abe. Yet the idea of slashing the corporate tax, floated by the government earlier this month, has received a lukewarm reception from analysts and policy makers, because of doubts over whether it would unleash enough investment to justify the loss of revenue. To offset the economic impact of a politically unpopular plan to double the sales tax from 5 percent, Mr Abe is considering, according to a Nikkei newspaper report on August 13, cutting the corporate tax rate to between 25 and 30 percent. Corporate leaders have long called for lower taxes as a measure to shore up Japan’s waning economic competitiveness. Set at 38 percent for a large Tokyo-based corporation, Japan’s corporate tax rate is well above the global average of 24 percent, as tracked by KPMG LLP. Keizai Doyukai, a leading business lobby, has urged lowering the rate to 25 percent. But, critics, including Finance Minister Taro Aso, question whether a tax cut would provide much of an economic boost, while others warn that it could worsen Japan’s fiscal position. SMBC Nikko Securities Inc estimates that lowering the corporate tax rate by 10 percentage points would cost the government some 2.5 trillion yen (US$25.74 billion) in lost tax revenue, more than double the forecast 1 trillion yen boost to economic output. Tomo Kinoshita, chief economist
at Nomura Securities Co Ltd, said a corporate tax cut would help make Japan more competitive over the longer haul. “However, we need to recognise that it’s costly,” he said. Keidanren, the lobby group considered the voice of big business in Japan, wants the Abe administration to consider reducing the tax as it begins work next month on a package of measures intended to spur growth. Currently, the only planned cut in the corporate tax will come when a surcharge for rebuilding earthquake hit areas expires in 2015, which would bring it down to 35.6 percent. Cutting corporate tax could prove politically controversial as Mr Abe would effectively be asking consumers, paying a higher sales tax, to subsidise corporate earnings. “If you lower the corporate tax rate on top of increasing fiscal spending you are eroding the meaning of raising the sales tax,” said Masahiro
KEY POINTS Japan’s corporate tax set at 38 pct Well above global average of 24 pct – KPMG Cut could offset impact of sales tax increase Firms could be required to write down value of assets
Nishikawa, a fiscal policy expert in the securities division of Goldman Sachs Group Inc in Japan. Moreover, there is no guarantee that a tax cut would convince companies to invest more, given how much cash they have been hoarding. Taken as a whole, Japan’s corporations outside the financial sector had 225 trillion yen – almost US$2.3 trillion – in cash as of the end of March, according to data from the Bank of Japan. They have been building that surplus steadily since the 2008 credit crisis, suggesting a deep-seated caution about whether Japan’s current recovery will be sustained. For comparison, corporations in the much larger U.S. economy had liquid assets of just US$1.8 trillion, according to the Federal Reserve.
Firms to suffer After a decade of slow growth and deflation, fewer than 30 percent of companies actually pay corporate tax. The rest are either unprofitable, or they are able to apply tax credits accumulated from losses incurred during the lean years. The overhang of cumulative losses, which companies can use to defray future tax obligations, currently totals around 76 trillion yen (US$776 billion), according to National Tax Agency data, having come down from a peak of 90 trillion yen in 2008. Japan Airlines Co Ltd, for example, is holding on to 348 billion yen in cumulative losses stemming from its bankruptcy in 2010. Firms used 9.7 trillion yen of tax credits against those losses to lower their tax burden in the fiscal year that ended in March 2012,
roughly equal to the total amount of corporate income tax that went into the state coffers. Lowering the tax rate would require companies that have booked losses as deferred tax assets to write down the value of those assets to reflect expectations that income taxes will be lower in the future. As earnings have improved some companies have run down their credits. Two of Japan’s largest banks, for example, just started paying tax again last year following a tax-free decade. Sony Corp and other struggling consumer electronics makers have in recent years written down tax assets to account for expectations of lower future taxable income, but the overall industry remains vulnerable to further write downs given a large overhang of tax credits, analysts said. “Any company that has large deferred tax assets on its balance sheet will have an exercise of writing down those assets,” said Marc Lim, partner at accounting firm PwC Japan. “That is going to then be flushed to the bottom line and impact earnings per share.” Write-downs stemming from a tax rate change are unlikely to be sizeable enough to be a serious problem for Japanese companies, but it could help widen the gap between strong and weak firms, said Jesper Koll, head of Japanese equity research at JPMorgan Chase & Co. “It speeds up the good versus the bad. That’s sort of a nice technicality about the whole thing,” Mr Koll said. Reuters
Panel divided on sales-tax plan Tokyo University Professor Takatoshi Ito said Japan’s sales tax should be increased as planned as a panel of economists and financial experts considering the levy split on the issue. “Economic indicators show the economy isn’t in a bad state and raising the sales tax wouldn’t slow the economy or the bid to end deflation,” Mr Ito, a former finance ministry official, told reporters after the meeting in Tokyo. Not proceeding in line with the plan could lead to falling stocks, a stronger yen and a spike in bond yields, Mr Ito wrote in a statement submitted to the panel. Mr Ito was among five of the nine people on the panel to agree with the plan to increase the tax to 8 percent in April from the current 5 percent, Economy Minister Akira Amari told reporters. Prime Minister Shinzo Abe’s adviser Koichi Hamada was one of two panel members to call for an incremental rise by 1 percentage point a year, according to Mr Amari. Mr Hamada, an architect of Mr Abe’s economic strategy, wrote in his statement that the tax-increase should be postponed for a year or, if technically possible, raised incrementally. Former Bank of Japan Deputy Governor Kazumasa Iwata earlier this week also urged a gradual approach, and called for 5 trillion yen (US$51 billion) in stimulus spending if the tax is raised as planned. Fewer than 30 percent of companies currently pay corporate tax
August 30, 2013 April 19, 2013
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0.8946 1.5514 0.9272 1.3265 98.13 7.9881 7.7553 6.1204 67.6825 32.2 1.2775 29.982 44.66 11205 87.782 1.22994 0.85505 8.1187 10.5962 130.17 1.03
0.2578 0.3298 -0.755 -0.6441 -0.7643 -0.0013 0 -0.0098 1.688 0.2484 0.3444 0.04 0.1567 0.5355 -1.015 -0.1171 0.9766 0.7846 0.6417 -0.1229 0
-13.7984 -4.0925 -1.2726 0.5686 -12.2592 -0.0613 -0.0606 1.8005 -18.7456 -5.0311 -4.3914 -3.1652 -8.1841 -12.6015 1.76 -1.8261 -4.6348 1.2169 -0.621 -12.7526 -0.0097
1.0625 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.3557 68.845 32.31 1.2862 30.228 44.82 11433 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032
0.8848 1.4814 0.9022 1.2487 77.13 7.9818 7.7498 6.1064 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20069 0.78875 7.8281 9.9774 97.99 1.0289
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August 30, 2013 April 19, 2013
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August 30, 2013 April 19, 2013
The global implications wires of falling commodity prices Business
Leading reports from Asia’s best business newspapers
Jakarta Globe Indonesia’s Finance Minister Chatib Basri announced ay that the government has rolled out four new fiscal policies to curb the widening current account deficit on the back of lower exports and increasing imports. The policies involve relaxing restrictions on bonded zones, adjusting the luxury goods sales tax, removing value-added tax on imported books and discounting tax payments for labourintensive industries. Mr Chatib said the policies were intended to ensure that the economic package announced last week had a sustained medium- and long-term impact.
José Antonio Ocampo
Former UN under-secretary-general, is a professor at the School of International and Public Affairs, Columbia University
Post-doctoral fellow at the Committee on Global Thought, Columbia University
Inquirer Business Philippine stocks wiped out all gains for the year while the peso depreciated to a three-year low against the dollar as rising global oil prices triggered by geopolitical tension in the Middle East heightened risk aversion across global markets. The mainshare Philippine Stock Exchange index slumped by another 178.93 points or 3.02 percent to close at 5,738.06. The market is now trading at its lowest level for 2013 and lagging its end-2012 level by 1.3 percent, reversing as much as 27 percent in gains earlier in the year.
Straits Times A Philippine businesswoman who allegedly connived with legislators to embezzle 10 billion pesos (US$224 million) in funds intended for development projects has surrendered directly to President Benigno Aquino, officials said. Janet Napoles turned herself in to Mr Aquino late Wednesday and asked for the president’s protection. “The president turned her over to the custody of Interior and Local Government Secretary Mar Roxas and Philippine National Police director general Alan Purisima for processing and booking,” Mr Aquino’s office said in a statement.
Bangkok Post The Thai government will switch its railway investment from high-speed to mediumspeed trains following strong criticism about the costeffectiveness of the scheme, said Pansak Vinyaratn, chief policy adviser to Prime Minister Yingluck Shinawatra. Medium-speed trains capable of 250 kilometres per hour carry a lower investment cost than high-speed ones and are suitable for product shipments, he said without elaborating.
he decade-long commodity-price boom has come to an end, with serious implications for global GDP growth. And, although economic patterns do not reproduce themselves exactly, the end of the upward phase of the commodity super-cycle that the world has experienced since the early 2000’s dims developing countries’ prospects for continued rapid catch-up to advanced-country income levels. Over the year ending in July, The Economist’s commodityprice index fell by 16.5 percent in dollar terms (22.4 percent in euros) with metal prices falling for more than two years since peaking in early 2011. While food prices initially showed greater resilience, they have fallen more sharply than those of other commodities over the past year. Only oil prices remain high (though volatile), no doubt influenced by the complex political events in the Middle East. In historical terms, this is not surprising, as our research into commodity supercycles shows. Since the late nineteenth century, commodity prices have undergone three long-term cycles and the upward phase of a fourth, driven primarily by changes in global demand. The first two cycles were relatively long (almost four decades), but the third was shorter (28 years). The upward phases of all four super-cycles were led by major increases in demand, each from a different source. During the current cycle, China’s rapid economic growth provided this impetus, exemplified by the country’s rising share of global
metals consumption. While these cycles reached similar peaks, the downswings’ intensity has varied according to global economic growth. The downswings following World War I and in the 1980’s and 1990’s were strong; in contrast, the dip after the Korean War, when the world economy was booming, was relatively weak. After World War II, the super-cycles of different commodity groups became more closely synchronised (including oil, which had previously shown a different pattern).
China’s uncertainty Just as China’s economic boom drove commodity-price growth in the current cycle, so the recent weakening of prices has largely been a result of its decelerating GDP growth, from double-digit annual rates in 2003-2007, and again in 2010, to roughly 7.5 percent this year. While projections of China’s future growth vary, all predict weaker economic performance in the short term – and even lower growth rates in the long term. The fundamental short-term issue is the limited policy space to repeat the massive economic stimulus adopted after the collapse of Lehman Brothers in 2008. China’s investment-led strategy to counter the crisis left a legacy of debt, and the continued deterioration of the demand structure – now characterized by an extremely high share of investment (close to half of GDP) and a low share of private consumption (about 35
percent) – further constrains policymakers’ options. There is a consensus that these abnormal demand patterns must change in the long term, as China moves to a consumption-led growth model. But, to accomplish this transition, China’s leaders must implement deep and comprehensive structural reforms that reverse a policy approach that continues to encourage investment and exports while explicitly and implicitly taxing consumption. The uncertainty surrounding China’s impending economic transformation muddies the growth outlook somewhat. Some forecasters predict a soft landing, but differ on the growth rate. Official estimates
The uncertainty surrounding China’s impending economic transformation muddies the growth outlook somewhat
put annual GDP growth at 6.5 percent in 2018-2022, while Peking University’s Michael Pettis, for example, regards 3-4 percent growth as consistent with continuous rapid consumption growth and the targeted increase in consumption’s share of GDP.
Declining growth While hard-landing scenarios, associated with a potential debt crisis, are also possible, the authorities have enough policy space to manage them. In any case, downside risks are high, and room on the upside is essentially non-existent. The main engine of the post-crisis global economy is therefore slowing, which has serious implications for one of the last decade’s most positive economic trends: the convergence of developed and developing countries’ per capita income levels. Just as China’s economic boom benefited commoditydependent economies, primarily in the developing world, its slowdown is reflected in these economies’ declining growth rates. (In fact, while several South American countries have been among the hardest hit, even developed countries like Australia have not been immune.) If weak global demand causes the current commodity super-cycle’s downswing to be as sharp as those of the post-1918 period and the late twentieth century, the world should be prepared for sluggish economic growth and a significant slowdown – or even the end – of income convergence worldwide. © Project Syndicate
August 30, 2013
Closing Euro zone, IMF to press Greece
Vodafone confirms Verizon talks
Greece’s international lenders will press Athens next month to transfer state-owned real estate to a holding company managed by the euro zone to spur flagging privatisation efforts, officials said yesterday. The plan, to be put to the Greek government by the troika of lenders in September, will propose creating a Greek-owned holding company outside Greece and run by foreign experts. Acting as a warehouse for property, it would seek to overcome Greek bureaucracy that has undermined the privatisation programme, agreed as part of a 240-billion-euro (US$320-billion) rescue. It will also ensure that the money raised will help pay off Greece’s debt.
Vodafone Group Plc is in talks to sell its 45 percent stake in Verizon Wireless to U.S. partner Verizon Communications Inc. Reports earlier this year suggested that Verizon was looking to buy Vodafone’s stake in Verizon Wireless for about US$100 billion. However, there has also been speculation that the stake is worth more than this. Shares in Vodafone jumped 9 percent following the company’s announcement. Verizon Wireless is the largest and most profitable phone operator in the U.S., with 100 million customers. “There is no certainty that an agreement will be reached,” Vodafone said in a statement.
Indonesia hikes interest rates to defend currency
China’s ministry halts some refining projects
Latest battered emerging economy to raise rates
ndonesia’s central bank raised its main interest rates yesterday, the latest emerging economy forced into action to defend its currency from further hammering by investors who have pulled out funds in search of safer havens. It is the third time in four months that Bank Indonesia has raised both its benchmark reference rate and the rate it pays banks for overnight deposits (FASBI). The benchmark rate is now its highest since June 2009 after it was raised 50 basis points to 7.0 percent. Indonesia’s 50-basis point increase in rates came right after a hike of the same magnitude by Brazil, which raised its benchmark interest rate to a 16-month high of 9 percent, trying to fight inflation and rebuild investors’ confidence in Latin America’s largest economy. But some economists said Indonesia’s move may still not be enough settle the rupiah currency, which has been pushed down sharply to more than four-year lows by concern over Southeast Asia’s biggest economy and the broad retreat from emerging markets on expectations the U.S. Federal Reserve will soon start closing the tap on cheap money that has helped drive up their economies.
Rupiah – pushed down sharply
“We see the BI rate hike as a short-term positive for the [rupiah]. However, in our view, it will not be sufficient to stabilise [it],” Standard Chartered Bank economists in Jakarta said in a note, predicting the currency would be at 12,000 to the dollar by the end of the third quarter. It is currently trading at 10,920 per dollar, barely changed following the rate increase. It has slumped more than 11 percent this year, making it the second worst performing currency
JPMorgan bribery probe expands A
probe of JPMorgan Chase & Co’s hiring practices in China has uncovered red flags across Asia, including an internal spreadsheet that linked appointments to specific deals pursued by the bank, people with knowledge of the matter said. The Justice Department has joined the Securities and Exchange Commission in examining whether JPMorgan hired people so that their family members in government and elsewhere would steer business to the firm, possibly violating bribery laws, said one of the people, all of whom asked to not be named because the inquiry isn’t public. JPMorgan, which has been in the Asia-Pacific region for about 140 years, has a presence in 16 countries
in the region including Australia, Japan, South Korea, China, Singapore, Thailand, Bangladesh and India. The spreadsheet, which links some hiring decisions to specific transactions pursued by the bank, may be viewed by regulators as evidence that JPMorgan added people in exchange for business, according to one person with knowledge of the review. The bank has opened an internal investigation that has flagged more than 200 hires for review, said two people with knowledge of the examination, results of which JPMorgan is sharing with regulators. The scrutiny began in Hong Kong and has now expanded to countries across Asia, looking at interns as well
in Asia after the Indian rupee. A big factor pushing down the rupiah in the past two weeks was Indonesia’s announcement that its current account deficit was a much higher than expected 4.4 percent of gross domestic product during the second quarter. In a statement yesterday, BI said that the deficit would narrow to 3.9 percent of GDP in the third quarter. The hikes were announced after a rare extra board meeting, indicating the level of concern among authorities over the impact sliding investor confidence in the former emerging market star is having on already slowing economic growth. Gundy Cahyadi, economist at OCBC Bank in Singapore, said BI’s decision “is meant to be (1) a signal that they are still on top of the situation to try and manage inflationary expectations in the country, (2) a bid to engineer a slowdown in the domestic economy to curb import growth, and (3) an attempt to boost U.S. dollar liquidity onshore”. Indonesia has been among the worst hit by the investor flight from emerging economies, along with other giants India and Brazil.
China’s environment ministry will stop approving some new refining projects and upgrades of existing facilities by the country’s top state-owned oil firms after the two failed to meet key pollution targets in 2012, it said yesterday. The Ministry of Environmental Protection (MEP) said China National Petroleum Corp (CNPC) failed to meet targets to cut chemical oxygen demand in 2012, while Sinopec Group failed to meet a target to cut nitrogen oxide emissions. Officials from the companies were not immediately available for comment, although the Communist Party mouthpiece People’s Daily said the MEP’s move would have no impact on 790,000 barrels per day of refining capacity now under construction. The ministry said in a notice posted on its website that it would suspend approvals of environment impact assessments for all new refining projects from the two oil giants, apart from any upgrades that target fuel pollution specifications or other environmental renovations. “Such tough punishment on the two oil majors is unprecedented - it is a warning to others,” said Wang Tao, resident scholar at the Energy & Climate Programme of the Carnegie-Tsinghua Centre for Global Policy in Beijing. “But the MEP has only suspended approval for their new refineries, and what we really need is for them to take strong measures to curb pollution from existing refineries,” said Mr Wang. CNPC is the parent of PetroChina CO Ltd, China’s dominant oil and gas producer. Sinopec Group is the parent of top Asian refiner Sinopec Corp.
ICBC, BoC profits beat estimates
as full-time workers, two people said. The employees include influential politicians’ family members who worked in JPMorgan’s investment bank, as well as relatives of assetmanagement clients, the people said. The SEC will hunt for evidence showing “these weren’t real jobs, that they were only there because their father or mother were important public officials,” said Dan Hurson, a former U.S. prosecutor and SEC lawyer who runs his own Washington practice. “If the public official requested the job for the child, that would be a strong indication to the company that the official was seeking and receiving something of value.” The government hasn’t accused JPMorgan or its executives of wrongdoing in connection with the hiring inquiry. “We are fully cooperating with regulators,” Mark Kornblau, a company spokesman, said in an interview.
Industrial and Commercial Bank of China Ltd and Bank of China Ltd both reported betterthan-expected second-quarter profit growth on yesterday, as net interest margins held steady while fees rose sharply. ICBC, the world’s largest bank by market capitalisation, posted net profit of 69.6 billion yuan (US$11.4 billion) for the second quarter, up 12.5 percent from a year earlier. That beat expectations for 67.1 billion yuan in a Thomson Reuters poll of analysts. BoC, China’s fourth-largest lender, reported quarterly net profit of 40.9 billion yuan, up 17 percent and topping analysts’ expectations of 38.0 billion yuan. The banks join China Construction Bank and Agricultural Bank of China in beating analysts’ estimates for the latest quarter, defying the pessimism over the business climate that has weighed on their share prices. Profit growth at most Chinese banks has slowed this year, as new loan growth has moderated and profit margins face pressure from policy moves to allow banks to offer higher rates on customer deposits. ICBC set aside 9.8 billion yuan in loan-loss provisions in the second quarter, up from 9.1 billion in the same period last year. BoC’s provisions soared to 14.1 billion yuan in the second quarter, from 3.8 billion yuan in the second quarter last year, a rise of 276 percent. ICBC’s net interest margin, which tracks the spread between the interest rate that banks pay for funds and the rates they charge to borrowers for loans, was 2.57 percent in the first half. The bank did not report its net interest margin in its first-quarter report. BoC reported its net interest margin at 2.23 percent in the first half, up one basis point from 2.22 percent in the first quarter.